Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?


Breaking Up Microsoft (MSFT) is a No-Brainer

  +Follow December 12, 2013 8:44AM
Tickers Mentioned:

In one of the most famous scenes of the movie Wall Street antagonist Gordon Gekko explains to neophyte trader Bud Fox why he decided he was going to liquidate the fictional Bluestar Airline: “Because it’s wreckable.”

He did not mean it’s wreckable in the sense that something should be destroyed because it can be destroyed, but rather that that the company was worth more to the world in pieces than as a whole. And actually, with large companies, this is very often the case.

The kernel of truth in the unrepentant capitalist Gekko’s statement is that often, monolithic companies have become lumbering giants, inefficient behemoths that lack focus and waste billions supporting an overweight structure.

Sound like Microsoft (MSFT) ? And the truth is if Microsoft were ever to be broken up, billions in potential value could be unlocked.

Kill the Beast! Kill the Beast!

Microsoft is one of the most unwieldy companies on the planet. It is a burgeoning mass made up of a famously uncooperative mass of disparate departments, united in name only.

There’s their software division. There’s their video game division and the reasonably successful Xbox series. There’s the unmitigated stinking disaster that is Bing. Not to mention tablets and the expected foray into smartphones following the Nokia acquisition.

That’s a lot of different directions to go in. And it comes at a time when the company is about to lose its bald head, the much derided Steve Ballmer.

The question for stockholders is what the most profitable decision is: trying to find someone who can maneuver the company over all that ground, or end the once undisputed king of tech into smaller, less dominant, but theoretically more nimble compenents?

Not “One Micorsoft,” But Two, or Three…

Several months ago Ballmer announced the “One Microsoft” initiative, aimed at directing the company in a coherent direction. At the same time, pundits were already imagining what it would look like to take the ax to Microsoft and split it like a cord of wood.

Analysts imagined at first a clean split of the company: one consumer tech (Windows, Office, Xbox) and one business-centric (SharePoint, Azure, Dynamics).  But since fall 2013, analyst opinion has begun to include the ideas of splitting Microsoft into even smaller, more specialized parts.

Jim Cramer suggested splitting Microsoft into three businesses: a software business; and “entertainment” business to handle the likes of Xbox; and a cellphone business – essentially, Nokia with more capital. Presumably, this would mean ending the multi-billion dollar failure of Bing, a proposition some of Ballmer’s possible successors have floated.

The value unlocked in this kind of breakup would be massive. Killing Bing alone would put an end to billions in lost income. And refocusing software could help reasserts Microsoft’s position in operating systems, a market currently dominated by Apple Inc. (AAPL) .

But it’s not just pundits calling for Microsoft’s head. It’s also one of the founders.

On Nov. 4 Microsoft co-founder Paul Allen’s money manager, reportedly speaking for Mr. Allen, called search and Xbox a “distraction” and recommended spinning them off.

How Much Could be Unlocked?

That’s the million dollar question. Or, more likely, multi-billion dollar question.

Rick Sherlund, an analyst at Nomura Securities, suggested if Microsoft spun off Bing and Xbox, they could increase their dividend to a whopping 6 percent, making it the highest-yielding large cap tech company for stockholders.

Others have argued that an “online services” division, comprised of Bing, MSN, and adCenter costs the company $8.1 billion a year in losses. Spinning off those companies alone would allow a massive buyback, dividend increase, or possibly both. The exact value derived from a breakup is uncertain, but there's little reason to believe it wouldn't total in the billions.

Is There a Reason to Keep Microsoft Whole?

Breaking up is hard to do, and in the case of multibillion dollar behemoths, is almost irreversible. Once the decision is made to split, the company can’t really go back on it. Once Xbox or Bing is sold off to another company, you can’t exactly ask for it back. So is there value in keeping it together?

To be sure, Microsoft’s stock this year has not been an outright disappointment. A 37.98 percent return on the year has it outpacing the gains of the otherwise robust S&P 500. And only the largest of companies can do things like institute $40 billion dollar buybacks.

Breaking up also might be easier said than done. Preston Gralla of ComputerWorld argues that Bing, however costly, is too integral to their other products to ever be killed.

But just because Microsoft has increased in value, and just because the poisonous Bing has wormed its way into several other lines, does not means more value won't be extracted long term form extrication. revenue does not mean more could not be unlocked via breakup.

And it’s almost impossible to argue that Microsoft’s incredibly disparate departments work better together. The corproate culture there is notoriously toxic, and there has been little indication "One Microsoft" has rectified this.

Microsoft should pick their next successor soon. The best thing he or she could do is take Microsoft and take the hammer to it.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

Liked What You Read? Join Equities.com as a contributor and get eyeballs on your content FOR FREE!

Results for MSFT
19 Dec 14 09:27:36
5 Things you must know ahead of the Box IPO $GOOG $GOOGL $MSFT $AMZN #BoxIPO http://t.co/vecaNY5Nwl
Luis Araya Vergara
19 Dec 14 09:19:44
RT @FelipeOvalle: ¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”…
Esteban Zamorano
19 Dec 14 08:59:27
RT @FelipeOvalle: ¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”…
Angelo Bernardi O.
19 Dec 14 08:55:51
RT @FelipeOvalle: ¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”…
The Fly
19 Dec 14 08:54:25
Red Hat soars to 52-week high after beat and raise quarter $RHT $ORCL $LOGM $VMW $MSFT: Full Story http://t.co/HDwyqu6UuV
19 Dec 14 08:50:55
Dow #Stocks Trend $DD $UNH $PG $MMM $UTX $GS $JPM $AXP $PFE $CSCO $TRV $HD $V $WMT $DIS $MSFT $INTC $CVX $MRK @ http://t.co/TvzJfdisOX
19 Dec 14 08:50:49
$MSFT Microsoft Corporation Sues Tech Support Scammers: Microsoft Corporation Sues Tech Support Scammers Valu... http://t.co/UeIW0MK7wl
19 Dec 14 08:50:43
RT @FelipeOvalle: ¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”…
19 Dec 14 08:50:42
RT @FelipeOvalle: ¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”…
Felipe Ovalle
19 Dec 14 08:50:05
¿Por qué @dfarcas sigue siendo diputado? Este año ya lleva el lobby con $MSFT y ahora esta pelotudez de la “Ley audífono”. País solidario.
19 Dec 14 08:48:44
RT @NeoMagic_Corp: Get #accessories for #Sony #PlayStation #PS4 here: Shop Now! #PlaystationNation https://t.co/VNgYeyG4PT $SNE $MSFT http:…
19 Dec 14 08:45:57
RT @mercadomagico: Get #accessories for #Sony #PlayStation #PS4 here: Shop Now! #PlaystationNation https://t.co/m9OSMxO4jZ $SNE $MSFT http:…
19 Dec 14 08:45:52
RT @mercadomagico: Get #accessories for #Sony #PlayStation #PS4 here: Shop Now! #PlaystationNation https://t.co/uhlJXMptDK … $SNE $MSFT htt…
Josette Becnel
19 Dec 14 08:39:28
Are you putting your money in $SWI $SDRL $MSFT $PCLN Must have http://t.co/1ZDZXPRP5s
Stock Wire
19 Dec 14 08:30:11
Microsoft Corporation Sues Tech Support Scammers $MSFT http://t.co/oeG8sfbZvU
19 Dec 14 08:29:26
$MSFT picture perfect island reversal pattern, if it closes at $47.50 or higher should come to upper bb at $49 http://t.co/6F4vsfGFAj
19 Dec 14 08:20:03
Microsoft’s Azure Cloud Platform Explained – Part 1 http://t.co/lzmC6YypSg by Trefis Team $MSFT $IBM $ACN
19 Dec 14 08:17:40
$ZNGA's Shareholders Wait for Gain Is Ending http://t.co/DB7NMIOjsU @robertweinstein $KING $FB $MSFT $SOHU
19 Dec 14 08:13:40
Get #accessories for #Sony #PlayStation #PS4 here: Shop Now! #PlaystationNation https://t.co/uhlJXMptDK … $SNE $MSFT http://t.co/GwdcXU7YGr
19 Dec 14 07:57:36
All you need to know about the Aibnb, Box and DropBox IPOs $GOOG $MSFT $TRIP $EXPE $AMZN #Airbnb #BoxIPO #DropBox http://t.co/2M0eWAntaQ
BUZZ Just-In
19 Dec 14 07:47:47
Compare brokers to find the right one for you- US Tech Giants http://t.co/TPs273ELCb $AAPL $GOOG $MSFT $FB $TWTR #spreadbetting #cfd
19 Dec 14 07:36:25
$MSFT:US Optus Business boosts Microsoft skills with Ensyst acquisition #MICROSOFT CORP http://t.co/0zde37oiah #NASDAQ
Donnell Isom
19 Dec 14 07:31:24
Insider Trading alerts on $FNF $MSFT $REGN $IBM #investing http://t.co/o78FblFmUY
19 Dec 14 07:26:48
Zynga's Shareholders Wait for Gain Is Ending http://t.co/jSem3P4nK7 @TheStreet $ZNGA $FB $MSFT $BABA @robertweinstein
FinSentS SP500
19 Dec 14 07:21:58
$MSFT:US Optus Business boosts Microsoft skills with Ensyst acquisition #MICROSOFT CORP http://t.co/UFJvGgtdjQ #SP500
Todd Campbell
19 Dec 14 07:15:13
3 CEOs Who Impressed Us the Most in 2014 $JNJ $MSFT $WFM #FF http://t.co/ED9M2rDfp3 via @themotleyfool
Cody Willard
19 Dec 14 07:10:51
Must-read article By David Gewirtz called "2014: The year Microsoft lost my loyalty" $MSFT has lost the war to... http://t.co/axMvPjyzmt
ARK Web x.0
19 Dec 14 07:02:01
#FredStuder jumps from $MSFT executive of CRM to $N CMO, saying it's "extremely well positioned within its market." http://t.co/gohlOysKi0
Future Tech Investor
19 Dec 14 06:52:09
$EMC near all time high. Looking to spike $MBLY $BABA $LMT $MSFT $DF $GILD $YHOO $LOCK $SYN $AMZN $PANW $NFLX $SSYS $FSLR $SCTY $TKMR $AAPL
19 Dec 14 06:52:04
$SE $MSFT: Moving Stocks: GSE Systems Inc. (NYSEMKT:GVP), Spectra Energy ... http://t.co/IBxlUJouVH http://t.co/eW0PPPPATM
19 Dec 14 06:49:09
RT @Crash_1929: A market crash is a nightmare for that own 99% of shares, for everyone else it will mean liberation of resources. $aapl $fb…
19 Dec 14 06:48:45
RT @Crash_1929: Warren Buffett: Optimism.. is the enemy of the rational buyer. $SPX $DIA $SPY $AAPL $ZNGA $MSFT $BAC $C $GS $KO $MSFT $PCLN…
19 Dec 14 06:46:08
Baidu, Alibaba Challenge US Tech Firms In Online Ads http://t.co/x836h7qmSU $BIDU $BABA $FB $SINA $GOOG $MSFT $YHOO #Stocks #Invest
19 Dec 14 06:44:06
Check out three of the best performing Dow stocks for 2014! $MSFT $INTC $UNH http://t.co/2bbYHLKLo7
19 Dec 14 06:41:50
Starting Your Own Business Offers Great Tax Benefits http://t.co/qr0DSkPvqY via @daily_finance $MSFT get a raise without asking your boss.
Delores Chamblin
19 Dec 14 06:39:49
Starting Your Own Business Offers Great Tax Benefits http://t.co/sXQ59UpPGr via @daily_finance $MSFT
Mr. Bytes Blog
19 Dec 14 06:34:40
The Morning Dump - Dec 19th #hacker $SNE $GOOG #VR $AAPL #mobile $F #ICANN #Android $MSFT #Bing @bryce http://t.co/QS9bQBLQdo
Ted Dunne
19 Dec 14 06:32:41
Google readies Android for the #ConnectedCar; Competing vs. car offerings from $AAPL and $MSFT http://t.co/Lhs2I53gC2 $GOOGL #IoT
AAPL Stock Alerts
19 Dec 14 06:30:03
Analysis: iPhone Sales May Top $50 Billion http://t.co/0Ey0ro10rq $GOOG $MSFT $AAPL
Kurt Butenhoff
19 Dec 14 06:09:13
Amazon's cloud business a harder sell in post-Snowden era | Reuters $msft will win more http://t.co/Tv60vXiu3s
Traci Bold
19 Dec 14 06:06:30
RT @MosseRodbay: 1.5M testers are helping Microsoft test Windows 10. http://t.co/adLDua01mk $MSFT http://t.co/xTQhWZ1TjY
Mosse Rodbay
19 Dec 14 06:05:16
1.5M testers are helping Microsoft test Windows 10. http://t.co/adLDua01mk $MSFT http://t.co/xTQhWZ1TjY
Mexican Trades
19 Dec 14 06:02:34
Ready to $BDR , $FREE , $MSFT (I was short, took some losses; change to long) (entry 45.2) , $CERS
Bobby Wilbert
19 Dec 14 05:55:31
$MSFT Today Only: Those who show up at Microsoft Store locations will get a year of #Xbox Music Pass for only $29.99 http://t.co/UNLf8KLXaT
Noemi Whited
19 Dec 14 05:47:42
Bad #Invesments like got you down $COL $SON $MSFT $SLW #StockMarket http://t.co/GVH3xR9oSY
Foster Corral
19 Dec 14 05:41:08
Are you considering selling $GLW $UNT $MSFT $IBM #financialnews http://t.co/XHfeB4FuUW
jose carnicero
19 Dec 14 05:39:52
Is Xbox One Really Beating PlayStation 4? $MSFT $SNE http://t.co/X2a3qAUlIB vía @benzinga
The Stock Professor
19 Dec 14 05:36:54
#Stock #News 3 Value Stocks Near 52-Week Lows Worth Buying: While many companies are risi... http://t.co/RGpull5dOy $MU $MSFT &TSLA $AMD
19 Dec 14 05:23:07
$WFT $MSFT: Don't Miss These Stocks: Bank of America Corporation (NYSE:BAC ... http://t.co/Gq8Itm37QB http://t.co/Au8LqQkk0c
Penny Stock Secret
19 Dec 14 05:20:16
Make Money With BitCoin Every Single Day More Info Here http://t.co/SVqoMlijqL .. $MSFT $ORCL $VOD
  +Follow December 12, 2013 8:44AM



blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.